A new analysis from the Boston College Center for Retirement Research casts doubt on a proposed plan to borrow heavily and invest in stocks as a remedy for Social Security's looming funding crisis. The study, which has garnered attention from financial outlets and policy analysts, suggests such a strategy would likely leave taxpayers with more debt rather than rescuing the program.
The Proposal Under Scrutiny
The idea, championed by Senators Bill Cassidy (R-LA) and Tim Kaine (D-VA), involves borrowing $1.5 trillion to create a separate investment fund that would be placed in equities and other riskier assets for 75 years. However, the plan also requires an additional $25.1 trillion in borrowing over the same period to cover benefit shortfalls, according to the paper authored by Anqi Chen, Alicia H. Munnell, and Jean-Pierre Aubry.
Risk and Return Mismatch
While stocks historically outperform Treasury bonds, they come with greater volatility. The Boston College analysis found that even with a 6.5% real return, the fund would fail to repay its borrowing in 64 out of 100 simulated scenarios. With a more conservative 4.0% real return, success occurred only 17% of the time. Douglas Holtz-Eakin, former CBO director and current president of the American Action Forum, noted that the strategy worsens the government's position initially, as it must borrow before investing, and the higher expected returns merely compensate for increased risk.
Social Security's Funding Timeline
The debate is gaining urgency as the latest trustees' report projects the combined Old-Age, Survivors, and Disability Insurance trust funds will be exhausted by 2034. At that point, the program would only be able to pay 81% of scheduled benefits from incoming revenue. Lawmakers are exploring options beyond the traditional choices of raising taxes or reducing benefit growth.
Comparisons to Other Pension Models
Proponents point to successful public pension systems like the Canada Pension Plan, the National Railroad Retirement Investment Trust, and the federal Thrift Savings Plan, which all have equity exposure. However, the Boston College researchers emphasize that these examples do not address Social Security's core challenge: its investable reserves are rapidly declining toward zero. The Bipartisan Policy Center noted in December that the Cassidy-Kaine fund would rely on general revenues or borrowing rather than surplus program inflows, setting it apart from conventional public pension funds.
Political and Economic Implications
The Committee for a Responsible Federal Budget described the proposal as a "Sovereign Debt Fund" that could significantly increase federal borrowing over the next 75 years and expose Social Security to market risks beyond those in current pension models. While the plan's supporters argue it could offer an alternative to tax hikes or benefit cuts, critics warn that if returns underperform, the government remains liable for the shortfall, leaving retirees facing the same fundamental gap between promised and actual benefits.
Path Forward
The Boston College authors do not entirely dismiss equity investing. They suggest that stocks could play a role if Congress first achieves solvency through tax increases, benefit reductions, or a combination, and then invests some rebuilt trust fund assets in equities. However, they caution that delaying action reduces potential gains. Waiting until 2034, they argue, would likely close the window for a lasting fix. For now, the arithmetic remains unchanged: lawmakers must still decide who pays more, who receives less, and when to act.
